"Financial Reforms" Lead to More Unbanked Americans

All well-intentioned bits of regulation have unintended consequences. Some of those consequences are foreseeable, in fact. Consumer protection legislation provides a good example. "The number of Americans who have bank accounts is likely to drop in the coming months as financial institutions seek to make up the costs of additional regulation with greater fees," says the Credit Union Times.

In response to new limits on fees, banks are setting new minimum balance requirements in order to avoid paying fees for checking services, while others have begun charging fees for debit cards and debit card use.

All financial institutions have faced increased regulations, but financial institutions with more than $10 billion in assets also face a cap on their debit card interchange which has been proposed as low as 12 cents per transaction. That is going to slice the profitability of the credit card business, and in some cases could put issuers under water, says Philip Philiou, partner at Selwanes Philliou.

The unintended consequence is a likely increase in the number of U.S. citizens and residents who do not use bank accounts. Ironically, that is going to increase the opportunity for mobile payment and money transfer services that do not require linking mobile payments to credit or debit accounts or checking accounts.

Interchange Cap Likely Leading To More Unbanked Americans